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NZD fails to breach 0.66 as risk demand sours

NZD - New Zealand Dollar

The New Zealand dollar failed to follow equities higher through early trade on Monday and struggled to break outside a 30-point range for much of the domestic session. With little of note on the macroeconomic calendar the NZD made a muted push toward resistance at 0.66 as Friday’s upturn in risk demand continue. Having touched intraday highs at 0.6591 the dollar retreated, forced back below 0.6550 as key equity indices drifted sharply lower. There appears no real catalyst for the risk off shift as headline news remains largely unchanged. Having broken into positive territory for 2020 the S&P 500 led the correction as investors appeared to take the opportunity to collect profits and unwind risk plays.

The New Zealand dollar remains vulnerable to broader fluctuations in risk demand as movements across currency markets narrow. The correlation between equities and growth led currencies has eased as resistance on moves approaching 0.66 prevents the Kiwi from shifting higher. We expect the NZD will remain range bound, bouncing between 0.6380 and 0.6620 as the ebb and flow of risk aversion continues to drive direction.

Key Movers

The US dollar edged marginally lower when measured against a basket of key major counterparts. Optimism the pandemic’s resurgence in the US was reaching its peak continued through early trade on Monday as the rate of increase in new infections across key US hotspots slowed. Having drifted toward a one month low the dollar found support following reports California will re-impose strict lockdown measures, forcing the closure, of bars, restaurants, gyms, hair salons and other service providers in a bid to stem the spread of the virus in some of the hardest hit counties.

The Euro advanced through trade on Monday, up 0.4% and testing a break above 1.1350 having touched intraday highs at 1.1373. Optimism ahead of this weeks EU leaders summit helped bolster demand for the common currency as investors look to EU officials for further updates regarding the EU recovery fund. The current plan allows for 750 billion Euro’s to be distributed to the worst effected countries via a series of grants and loans. With the Netherlands, Denmark and Austria all questioning the issuance of grants and shared debt obligations investors will be keenly attuned to any amendments in the proposal and/or sings the current proposal may be derailed. Should EU leaders agree a package this week we could see an extended risk on move helping drive risk currencies higher and force haven assets lower.

Expected Ranges

NZD/USD: 0.6480 - 0.6590 ▼

NZD/EUR: 0.5680 - 0.5820 ▼

GBP/NZD: 1.9020 - 1.9300 ▼

NZD/AUD: 0.9360 - 0.9470 ▼

NZD/CAD: 0.8850 - 0.8940 ▼